January 17, 2024
What to expect in Washington (January 17)
The $78 billion Tax Relief for American Families and Workers Act of 2024 proposed by House Ways & Means Committee Chairman Jason Smith (R-MO) and Senate Finance Committee Chairman Ron Wyden (D-OR) January 16 after lengthy negotiations addresses TCJA pre-cliffs and the Child Tax Credit (CTC) plus the as-expected add-ons including the United States-Taiwan Expedited Double-Tax Relief Act (H.R. 5988), disaster relief, and affordable housing provisions. Exact plans for the bill aren't clear, though there has been talk of a Ways & Means markup as soon as Friday and a possible standalone House vote the week of January 29 (the House is scheduled to be out next week). It has long been thought that the bill might best move through Congress attached to a long-term appropriations bill, though it isn't clear how the weekend agreement to move a continuing resolution (CR) that leaves a long-term bill until March scrambles that calculation given lawmakers are aiming to complete consideration by the start of the tax filing season, which is January 29.
The collaboration on the framework between Chairmen Smith and Wyden is notable, but so too is the absence of Ways & Means Ranking Member Richard Neal (D-MA) and Finance Ranking Member Mike Crapo (R-ID) on the joint statement, when in the past they have offered "four corners" support of other legislation. Senator Crapo released a statement saying in part that the proposal is a "thoughtful starting point for the House to begin the process." He was later reported as saying he and other Republicans would seek changes to the bill, which they think should be marked up by the Finance Committee. Senate Majority Leader Chuck Schumer (D-NY) and Senator Maria Cantwell (D-WA) praised the inclusion of low-income housing provisions. Some members concluded the deal, in the making since at least late 2022, offered benefits to both parties. "The Ds are getting some things that they want to work on," said Rep. Greg Steube (R-FL) in today's Wall Street Journal. "Republicans are getting things they want to work on."
Restoring IRC Section 174 expensing for domestic R&D and the prior IRC Section 163(j) interest deductibility parameters are proposed to be retroactive to 2022 and extended through 2025. As expected, the summary says the provision delays the date when taxpayers must begin deducting their domestic R&D costs over a five-year period until tax years beginning after December 31, 2025, and indicates it does not address the requirement that R&D conducted outside of the United States be deducted over a 15-year period. The proposal also includes an extension of 100% bonus depreciation. There is also an increase in the small business expensing amount under IRC Section 179, to $1.29 million, reduced by the amount by which the cost of qualifying property exceeds $3.22 million, and an increase in the 1099 information reporting threshold from $600 to $1000, adjusted for inflation after 2024.
The CTC expansion in the bill would increase the maximum refundable amount per child to $1,800 in tax year 2023, $1,900 in tax year 2024, and $2,000 in tax year 2025, with the value of the credit adjusted for inflation in tax years 2024 and 2025. The bill also includes provisions on the calculation of the refundable credit on a per-child basis and allow the use of earned income from the prior tax year to calculate the maximum child tax credit if earned income in the current tax year was less than the prior year.
Also included are provisions consistent with the Federal Disaster Tax Relief Act (H.R. 5863) to provide personal casualty loss relief for any disaster area declared since 2020, and benefits for payments related to wildfire relief and train derailments. Housing provisions would restore the 12.5% Low-Income Housing Tax Credit (LIHTC) ceiling increase for calendar years 2023 through 2025 and provide a transition rule regarding the tax-exempt bond financing requirement. The revenue offset for the package is enforcement provisions with respect to covid-related Employee Retention Tax Credit (ERTC), including increased penalties, enhanced disclosure requirements, and barring additional claims after January 31, 2024.
Government funding — The tax bill landed in Washington as Leader Schumer and House Speaker Mike Johnson (R-LA) agreed over the weekend to pursue another continuing resolution (CR) to extend government funding beyond the January 19/February 2 deadlines, until March 1/March 8 respectively. The CR includes a health extenders package. The Senate cleared a procedural motion related to H.R. 2872, the legislative vehicle for the CR, on a 68-13 vote last night.
The Washington Post said of the CR until March, "that's less of an extension than it seems: The House and Senate are in session together for only six days between Friday and March 1, and for 10 days between Friday and March 8. In those windows, lawmakers need to pass a series of more complicated, longer-term bills to fund the government for the rest of the 2024 fiscal year, which ends Sept. 30."
President Biden is scheduled to deliver the State of the Union Address on March 7. The March 8 government funding deadline also lines up with the expiration of the Federal Aviation Administration (FAA) authorization and taxes deadline. The House approved its FAA bill in July 2023, but the Senate Commerce Committee markup of legislation has remained stalled over issues including pilot training.
The CR and broader appropriations measures are expected to need bipartisan support to pass, but the thinning Republican-only majority is notable. "This week, with lawmakers absent for medical reasons and the recent not-so-voluntary departures of the ousted former speaker Kevin McCarthy and the expelled Mr. Santos, the best G.O.P. attendance that Speaker Mike Johnson can muster as he tries to avoid a government shutdown is the bare-minimum 218 votes. That is before factoring in the impact of rough winter weather across the nation," the New York Times reported. "Another Republican, Representative Bill Johnson of Ohio, is resigning as of Sunday to take a job as a university president, lowering the number to 217 if Representative Harold Rogers of Kentucky, the 86-year-old dean of the House, is unable to quickly return from recuperating from a car accident. Representative Steve Scalise of Louisiana, the No. 2 Republican, is out until at least next month … "
The President has invited the "Big Four" of congressional leadership — Schumer, Johnson, House Democratic leader Hakeem Jeffries (D-NY) and Senate Republican leader Mitch McConnell (R-KY) — to the White House today to discuss the national security supplemental to provide money for Ukraine and Israel and for other purposes, which has for weeks been tied up in bipartisan border security talks. Fox News reported Senator James Lankford (R-OK), a main negotiator, as saying, "We've been meeting with White House folks now for weeks going through so I don't know what would change on that for us as we're trying to be able to work through all the different policy decisions."
Congress — Today, January 17, at 10 a.m., the Senate Budget Committee holds a hearing, "The Great Tax Escape: Closing Corporate Loopholes that Reward Offshoring Jobs and Profits."